As Hillary Clinton and Bernie Sanders try to one-up each other on Wall Street reforms – you know, so the big bad bankers never get to wreck the economy again – I can’t figure out how they managed to leave out the most important part of the story: as I see it, the politicians CAUSED the subprime mortgage crisis that led to the economic meltdown.
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If the Democratic presidential frontrunners want to get tough on those responsible for the financial crisis, maybe they should look at their own party. Truth is, in my opinion, regulators and legislators, along with a host of other co-conspirators, had at least as much to do with it as the big banks did.
Far be it from me – a relatively impartial observer – to point out that an almost ludicrously long list of bad actors were involved in systematically circumventing, breaking, or changing the rules that were meant to prevent this sort of thing from happening, all for political and financial gain.
It all started with the Community Reinvestment Act of 1977. Originally designed for low-income families to obtain mortgages, a long string of subsequent revisions, amendments and related legislation over the next quarter century turned good intentions into politically motivated madness.
One by one, all the checks and balances intended to keep lenders from writing risky loans were undermined. Then, in the early years of the new millennium, the Department of Housing and Urban Development (HUD) had Fannie Mae dedicate half its funds to back affordable housing, including hundreds of billions of dollars in bad loans.
Not surprisingly, a handful of greedy individuals took advantage of the political climate. As CEO of the nation’s biggest mortgage lender, Countrywide Financial, and cofounder of mortgage investment bank IndyMac, Angelo Mozilo was, in my opinion, one of the kingpins of predatory lending practices.
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Meanwhile Marion and Herb Sandler – founders of World Savings Bank and parent company Golden West Financial and pioneers of the option ARM – made $2.3 billion when they sold the company and its portfolio of problem mortgages and loans to Wachovia for $24 billion, leading to the bank’s collapse and subsequent sale to Wells Fargo.
Former Fed Chairman Alan Greenspan and Treasury Secretary Robert Rubin both supported deregulation of derivatives and subprime mortgages, not to mention keeping interest rates down, all of which served as catalysts for the financial crisis.
It was largely the efforts of Phil Gramm who, as then chairman of the Senate Banking Committee, spearheaded deregulation that led to the repeal of the much talked about Glass-Steagall Act and the exemption of over-the-counter derivatives, including credit-default swaps, from regulation.
Of course the bankers found a creative way to get all those high-risk mortgages off their balance sheets, packaging and selling them to institutions and investors all over the globe. But that scheme could not have worked if rating agencies like Standard & Poor’s and Moody’s hadn’t given them investment-grade ratings.
Much of this is explained in Mark Gilbert’s book Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable.
Perhaps the greatest irony of all is that the authors of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Barney Frank and Chris Dodd, supported deregulation and affordable housing as chairmen of the House Financial Services and Senate Banking committees responsible for oversight of the housing and banking sectors. That’s what you call the foxes guarding the henhouse, my friends.
I’m sure I missed a few cronies, but one thing is certain: there is plenty of blame to go around. There were more than a few greedy, power-hungry, politically motivated and just plain misguided parties complicit in the subprime mortgage crisis that led to a global financial meltdown. Yes, some big banks were involved, but so were a confederacy of politicians, regulators and corrupt mortgage lenders.
Unfortunately, America’s only getting part of the story from Hillary Clinton and Bernie Sanders. Don’t be fooled.